The destiny of essential facilities in India

Jun 02, 2012

By Sundar Ramanathan

Introduction

In the first three years, the Competition Commission of India (CCI) has pro-actively adjudicated a large number of matters and issued large penalties, which are under appeal but has made industry sit up and take notice. CCI is now increasingly viewed as a key player in ensuring free play of market forces in our economy. In the coming days, the CCI is expected to address several key policy and regulatory issues, particularly the litigious issue of ‘essential facilities’. The question is “whether the facilities developed by enterprises be shared with others who wish to enter a market and want to compete in it.” What are the parameters for a facility to be termed as ‘essential’ and when should access to such a facility be granted and on what terms? Answers to these questions will pave the way for antitrust jurisprudence in India and also determine the extent of the free market system.

International application of the doctrine

The genesis of this doctrine is traceable to the Terminal Railroad Association case, rendered in 1912 by the US Supreme Court. The court considered whether a terminal railroad association that obtained control over every means of railroad access to St. Louis would be a combination in restraint of trade. The Court found that since no non-member could pass through or enter St. Louis without using the facilities as a result of the geographical and topographical conditions and as the facilities were also allowed only with the unanimous consent of all members, the actions of the terminal company would be anti-competitive. Relying on the evidence of the expert witness, the US Supreme Court concluded that the facilities were “public utility” and denial of access would adversely impact trade and commerce, accordingly that non-discriminatory access had to be provided to all users.

The next important case on the aspect of essential facilities was the Associated Press case. The matter related to the admission policy of Associated Press (AP), an organisation of 1200 newspapers as members and whose bye laws prohibited the sale of news to non-members and additional conditions were imposed on those wishing to gain admission. Justice Black rendered the majority opinion that the action was anti-competitive and would result in blocking new entrants into the market. However, Justice Frankfurter who joined with the majority in his concurring majority observed that the AP unlike other commercial entities that worked for profit had a relation to public interest in dissemination of information and further turned down the objection that this would turn AP into a public utility (as opposed to a private club) because such a categorization should not come in the way of access to news and information.

In 2004, the US Supreme Court in Verizon Communications Inc v. Law Offices of Curtis v Trinko LLP held that the Supreme Court has never recognised the essential facilities doctrine. The challenge was to the refusal to share network with competitors as mandated under the Telecommunications Act, 1996. Verizon was providing access to its network on a discriminatory manner to the detriment of the competitors and was therefore acting contrary to the provisions of the Sherman Act (the competition law statute in USA). The Court ruled that for an attempt to monopolise it is necessary to demonstrate that in addition to being a monopoly power in the relevant market, “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” The Court further observed that directing / compelling firms to share their infrastructure would not be in line with the underlying purpose of antitrust (competition) law as it may lessen the incentive for enterprises to invest in economically beneficial facilities. Furthermore, it will also require the Court to act as the central planners for the industry and facilitate collusion among the parties and impede the objective of the Sherman Act. The Court also noted that because of these uncertain virtues, very cautiously and only under very limited exceptional circumstances will sharing be mandated. The Court noted that the case did not fall within these exceptions. Further, it would be necessary to prove that there was no alternative access, which was not applicable in the present case.”

The EU Commission has taken a more conservative position on “access to common facilities” and ruled in the Sealink case that the dominant undertaking should not leverage its dominant position in one market to protect its position in another market (as in the present case operating harbours and running ferries) and where the competitor is already subject to certain level of disruption by the dominant undertaking there is a duty on the dominant undertaking not to take any action which will result in further disruption. The Commission observed finally that a competitive disadvantage could not be imposed by the dominant undertaking by altering its own schedule. It will be interesting to note that the Commission indicated that the essential facility would mean a facility which is indispensible to provide services to consumers as opposed to facility that is required to improve the competition among the competitors if access is given.